Short Call | Small-caps may not defy gravity for long; attention on Aarti, Petronet on slippery track, Biocon in bother

The December quarter numbers have come as a reality check for the bulls.

“In the stock market one quickly learns how important it is to act swiftly.” - Bernard Baruch

The earnings season enters its final lap this week. On the whole, the December quarter numbers have come as a reality check for the bulls. It has been a mixed bag as always, but this time the misses appear to have drawn more attention. The euphoria in mid, small and micro-cap shares continues unabated. One reason is that the numbers broadly have been good, but the bigger force at work is the lack of liquidity. A reality check in this space too may not be far off.

Aarti Industries (Rs 663.05, +4.7%)

The company’s Q3 revenue grew 3 percent YoY and 19 percent QoQ.

Bull argument: Pricing and volume growth led to revenue growth in a challenging market. There is demand in sectors like dyes, pigments and polymers.

Bear argument: Profit fell by 9 percent. Sectors like agrochemicals and pharmaceuticals continue to be plagued by demand challenges.

Petronet LNG (Rs 270, -3%)

Stock has retracted nearly 10 percent from its record highs

Bull argument: The company last week  signed a long-term deal with

QatarEnergy for buying 7.5 million tonnes of liquefied natural gas (LNG) per annum. With LNG prices having cooled off, demand is expected to pick up.

Bear argument: Rising competition, underutilisation of existing capacity and likely pressure on margins because of foray into petrochemicals.

Biocon (Rs 274, -3.76%)

Shares tanked after December quarter missed market estimates.

Bull argument: The addition of a large customer base in insulin glargine and incremental contract wins in existing products may help improve profits. Received four product approvals in API and formulations one each in the US, UK and two in RoW. Biosimilars and peptides pipeline can potentially drive double-digit growth.

Bear argument: Regulatory issues at the Malaysia facility and moderation in demand for CDMO services remain headwinds. The generics business continued to struggle and biosimilar margins were disappointing.

Zomato (Rs 149.10, +3.47%)

The stock gained after strong Q3 performance. Brokerages increased target prices as the company recorded third straight quarter of profits

Bull argument: Blinkit, which was a painpoint, is now accelerating and contributing to overall gross merchandise value. Zomato's platform fee (of Rs 4) is also helping in delivering profits. Mutual funds have been increasing stake

Bear argument: ONDC's scale up remains the biggest threat to Zomato. How the company grows in tier 2 and tier 3 cities remains a key monitorable.

Grasim (Rs 2,179.05,  +5.92%)

Company’s net profit for the December quarter rose 48 percent.

Bull argument:  Increased capacity for the Epoxy business will help the company meet the growing demand. Paint business will be launched in March, and that could be an additional stream of steady revenues.

Bear argument: Challenges in caustic soda business continue to challenge the revenue. Embroidery and home furnishing also saw lower demand.

Interglobe Aviation (Rs 3105.95, -0.84%)

The stock took a knock after a parliamentary panel proposed route-specific capping of airfare.

Bull argument: Demand remains strong. Can be seen from the company’s plans to increase its fleet size to 350 in FY24 from 306 in FY23 also add 10-15 new destinations. Crude prices expected to be stable.

Bear argument: Erstwhile promoter Gangwal family is looking to sell stake. So institutions looking to buy big blocks won’t have to do that from the open market.

(With inputs from Yash, Anishaa, Ananthu and Srushti)